SOME QUESTIONS AND ANSWERS ABOUT BANKRUPTCY

Q. What is the difference between Chapter 7 and Chapter 13?

A. A Chapter 7, also known as a straight bankruptcy, is a person’s most powerful weapon. It makes most debts disappear without paying them back at all. Straight bankruptcy is a good idea if someone realistically cannot expect to pay a significant portion of his or her debts with in a reasonable period of time.

A Chapter 13 bankruptcy involves payment of all or a portion of your debt over a period of time, from three to five years. Each week or month, a payment is made to a Chapter 13 trustee, who then pays the creditors. Chapter 13 can be an extremely flexible and useful way to deal with debt problems.

Some refer to this as a “US Government Managed Repayment Plan.” Actually, it is the individual who makes up the plan, and, if the plan is accepted by the court, the only “government management” you will ever see is the fact that the money is paid into the court, and the court pays it out. You control the terms, And the percentage of payment to the individual creditors. The Chapter 13 bankruptcy can be filed even if you have filed a bankruptcy in the past, and is commonly used to stop foreclosures.

Q. Will my employer be notified of the bankruptcy?

A. In a straight bankruptcy the employer is not notified, because there is no repayment plan to be wage deducted. In Chapter 13, the preferred method of plan payment is by wage deduction, although it is possible to have the payments taken directly out of your bank account, without involving your employer.

Q. What will the effect be on my credit rating?

A. If you are a candidate for bankruptcy, your credit rating is probably already damaged, although this is not always the case. I have seen many cases where no payments have been missed, although the people are borrowing on one credit card to pay on the other cards.

Credit reporting companies are able to keep a notation of the bankruptcy for up to ten years, but today, unlike even a few years ago, filing a bankruptcy is NOT the end of your ability to get credit. I tell all of my clients several easy ways to rebuild their credit quickly. These steps are so successful that my clients call to tell me that they have rebuilt their credit, and two or three years after bankruptcy, they are buying a house.

Q. Will my bankruptcy be reported in the paper?

A. When have you ever seen anyone’s bankruptcy in the paper? It is a public record but you have to read the legal newspapers to see it and the only people I know that read these papers are lawyers. Anyone who wants to can go to the federal court in Eugene and see who has filed bankruptcy.

I have actually filed bankruptcy for relatives, at the same time, and neither knew that the other was filing. Unless you tell them, your friends, relatives, and neighbors or anyone else, are not likely to know that you have filed.

Q. Can I keep my car in a bankruptcy?

A. Yes, you can keep your car, your house, your stereo and other property, subject to certain limitations if they are owned outright. If you owe on any of it, you can choose to keep the debt and the result is just as if you had not filed on that particular debt. This is what people mean when they say that they did not file on their house or car or other debt.

Q. Can I keep any of my credit cards?

A. Yes. Some credit card companies have special programs for people who want to keep their credit card. Sometimes the limits are lowered, sometimes not. There is a way I have used to help my clients keep credit cards without the credit card company being told that they filed. This way, there is no effect on the card at all and the entire credit line is protected.

Q. What if I want to pay back my debts, I just need some time to catch up and the creditors are unreasonable, demanding payments I cannot make, and refusing to work with me?

A. In this case, a Chapter 13 will probably be your best bet. You can stretch out your payments for three to five years, and the creditors cannot do anything to stop you.

Q. I think a Chapter 13 is for me. Do I have to pay back 100% of all of my debts?

A. No. Some Chapter 13 plans pay less than 100% on some or all of your debts. This will depend on your living expenses, how much you earn, and what types of debts you owe. Then, if you successfully make all of the plan payments, your debts will disappear at the end of the plan, even if you have not paid them back in full.

Q. Will a Chapter 13 be better for my credit rating than a Chapter 7?

A. Not really. Although you might think a person would be rewarded with a kinder view of their credit rating when they pay back at least some of their debt, it does not appear to work that way. In fact, creditors know that when a person files a Chapter 7, they don’t owe any other debt, so their income is free to spend on new debt. Also, creditors know that you can file a Chapter 7 once every 6 years, so they are sure that you will not be able to discharge their debt in another Chapter 7 bankruptcy. For this reason, Chapter 7 actually cleans up your credit rating in some respects, and faster, than a Chapter 13.

When you are in a Chapter 13, you are not allowed to go out and borrow money without permission from the Trustee. So, you are not establishing a repayment track record, while the trustee is paying all or some of your bills. This is another reason why Chapter 7 is often a quicker way to resolve and restore your credit.